WEBVTT 00:00:00.000 --> 00:00:03.180 Imagine, if you can, a very specific kind of 00:00:03.180 --> 00:00:06.320 anticipation. It's not quite like Christmas morning 00:00:06.320 --> 00:00:08.539 and it's definitely not like waiting for an Amazon 00:00:08.539 --> 00:00:11.480 package to show up. It's weirder. You're standing 00:00:11.480 --> 00:00:15.339 in this brightly lit, almost sterile room. Let's 00:00:15.339 --> 00:00:18.039 say it's 1986. You've just gone through a process 00:00:18.039 --> 00:00:21.199 that felt more like filing a tax return than, 00:00:21.260 --> 00:00:23.179 you know, buying a toaster. Right. There was 00:00:23.179 --> 00:00:25.480 a clipboard involved. A wooden clipboard. And 00:00:25.480 --> 00:00:27.600 you had to press down really hard. With this 00:00:27.600 --> 00:00:30.120 little pencil on carbon paper, you handed cash 00:00:30.120 --> 00:00:33.320 to a person, and now you're just standing there 00:00:33.320 --> 00:00:34.979 with a bunch of strangers all staring at a wall, 00:00:35.100 --> 00:00:37.420 or more specifically, at a hole in the wall. 00:00:37.500 --> 00:00:39.679 It sounds like the setup for some dystopian sci 00:00:39.679 --> 00:00:42.000 -fi movie, The Waiting Room. It totally does, 00:00:42.100 --> 00:00:46.460 doesn't it? But the magic happens. A silver motorized 00:00:46.460 --> 00:00:49.060 track, this conveyor belt, it just rumbles to 00:00:49.060 --> 00:00:51.079 life. Yeah. And it comes out of the darkness 00:00:51.079 --> 00:00:53.799 of that hole. And sliding down these rollers, 00:00:53.939 --> 00:00:57.560 bumping against the sides, is a box. And then 00:00:57.560 --> 00:00:59.820 another one. And another. And you're just scanning 00:00:59.820 --> 00:01:01.979 them, looking for your number, until finally, 00:01:02.119 --> 00:01:06.180 yes, there it is. Your Sony Walkman. Or your 00:01:06.180 --> 00:01:10.700 blender. Your diamond tennis bracelet. Yes. The 00:01:10.700 --> 00:01:13.340 merchandise pickup area. The merchandise pickup 00:01:13.340 --> 00:01:16.200 area. That phrase is a time machine for a certain 00:01:16.200 --> 00:01:18.680 generation. It really is. If those words trigger 00:01:18.680 --> 00:01:22.079 a memory for you, the hum of the motor, the clack 00:01:22.079 --> 00:01:24.700 of the rollers, maybe the smell of, like, floor 00:01:24.700 --> 00:01:27.989 wax and ozone. Then you know exactly where we're 00:01:27.989 --> 00:01:30.530 going today. We are talking about service merchandise. 00:01:30.730 --> 00:01:34.469 A name that was once, I mean, absolutely ubiquitous 00:01:34.469 --> 00:01:36.950 in American retail. And now it's effectively 00:01:36.950 --> 00:01:40.010 a ghost, a memory. But here's the thing. We're 00:01:40.010 --> 00:01:42.109 not just here to get nostalgic about conveyor 00:01:42.109 --> 00:01:44.069 belts. Although, let's be honest, we are definitely 00:01:44.069 --> 00:01:46.010 going to talk a lot more about the conveyor belts. 00:01:46.150 --> 00:01:48.310 Of course. We're here to do a deep dive into 00:01:48.310 --> 00:01:50.980 the business of service merchandise. Because 00:01:50.980 --> 00:01:52.719 when you strip away all that childhood memory, 00:01:52.939 --> 00:01:54.700 you're left with a company that was generating 00:01:54.700 --> 00:01:58.900 $4 billion in annual sales. $4 billion. And that's 00:01:58.900 --> 00:02:00.799 a massive number, especially when you adjust 00:02:00.799 --> 00:02:03.200 it for inflation in the context of the time. 00:02:03.319 --> 00:02:05.939 This wasn't some quirky mom and pop shop that, 00:02:05.939 --> 00:02:08.180 you know, got lucky. This was a titan of retail. 00:02:08.460 --> 00:02:11.379 Exactly. And the mission for this deep dive is 00:02:11.379 --> 00:02:13.840 to answer what feels like a really confusing 00:02:13.840 --> 00:02:16.719 question. How does a company that seemed to have 00:02:16.719 --> 00:02:19.199 everything figured out, a huge customer base, 00:02:19.360 --> 00:02:22.060 a sophisticated logistics network, and a model 00:02:22.060 --> 00:02:25.000 that was weirdly ahead of its time, how does 00:02:25.000 --> 00:02:26.800 it just... completely evaporate and not just 00:02:26.800 --> 00:02:29.139 evaporate but fail in a way that really makes 00:02:29.139 --> 00:02:31.639 you question the entire evolution of retail because 00:02:31.639 --> 00:02:33.819 if you look at their model the catalog showroom 00:02:33.819 --> 00:02:37.020 it looks well it looks suspiciously like a physical 00:02:37.020 --> 00:02:39.259 version of amazon doesn't it it does you browse 00:02:39.259 --> 00:02:41.360 a catalog you order from a massive warehouse 00:02:41.360 --> 00:02:43.180 and you pick it up you're just using a pencil 00:02:43.180 --> 00:02:45.319 instead of a mouse that's the paradox we really 00:02:45.319 --> 00:02:46.960 need to unravel they built the infrastructure 00:02:46.960 --> 00:02:49.319 for the internet age before the internet even 00:02:49.319 --> 00:02:52.060 existed and yet when the internet actually showed 00:02:52.060 --> 00:02:55.139 up they died. It's a classic business tragedy, 00:02:55.280 --> 00:02:57.500 really. It's about timing, it's about execution, 00:02:57.840 --> 00:03:00.979 and it's about the brutal efficiency of what 00:03:00.979 --> 00:03:04.180 we now call category killers. So let's get into 00:03:04.180 --> 00:03:08.580 it. The rise, the billions, the clipboards, and 00:03:08.580 --> 00:03:11.520 the fall of service merchandise. But to understand 00:03:11.520 --> 00:03:14.259 how it died, we have to understand how it was 00:03:14.259 --> 00:03:17.219 born. And this story doesn't start in a suburban 00:03:17.219 --> 00:03:20.400 mall in the 1980s. It starts way, way further 00:03:20.400 --> 00:03:22.479 back. Much further back. We need to go all the 00:03:22.479 --> 00:03:24.780 way back to the Great Depression. 1934. Right. 00:03:25.099 --> 00:03:27.340 Pulaski, Tennessee. This is where we meet the 00:03:27.340 --> 00:03:30.139 founders, Harry and Mary Zimmerman. And it's 00:03:30.139 --> 00:03:32.819 so crucial to understand that in 1934, the retail 00:03:32.819 --> 00:03:35.599 landscape was, I mean, it's just unrecognizable 00:03:35.599 --> 00:03:37.560 compared to what we know today. There's no Walmart, 00:03:37.719 --> 00:03:40.680 no Target. No Best Buy. Nothing like that. You 00:03:40.680 --> 00:03:43.080 had your local general stores, you had big department 00:03:43.080 --> 00:03:45.340 stores in the major cities, and you had Five 00:03:45.340 --> 00:03:47.120 and Dimes. And that's where the Zimmerman started, 00:03:47.340 --> 00:03:49.960 with a Five and Dimes store. And for anyone who 00:03:49.960 --> 00:03:51.219 might not know the term, a Five and Dimes is 00:03:51.219 --> 00:03:53.159 basically the original dollar store, right? In 00:03:53.159 --> 00:03:56.000 spirit, absolutely yes. It's all about high volume, 00:03:56.280 --> 00:03:59.780 low margin, small goods. Wool Wolf's was the 00:03:59.780 --> 00:04:02.509 giant in that space. Just think about it. Starting 00:04:02.509 --> 00:04:06.110 a retail business in 1934, that takes a specific 00:04:06.110 --> 00:04:09.610 kind of grit. Oh, the economy is in absolute 00:04:09.610 --> 00:04:12.629 shambles. Disposable income is practically non 00:04:12.629 --> 00:04:14.969 -existent for most people. So Harry and Mary 00:04:14.969 --> 00:04:17.990 are basically learning how to do retail on the 00:04:17.990 --> 00:04:20.290 hardest possible difficulty setting. Exactly. 00:04:20.290 --> 00:04:23.430 And that experience, I think, it shapes the DNA 00:04:23.430 --> 00:04:26.689 of the company for its entire lifespan. They 00:04:26.689 --> 00:04:30.569 learn that value, pure, undeniable price competitiveness. 00:04:31.389 --> 00:04:33.310 is the only thing that really matters when people 00:04:33.310 --> 00:04:35.930 are broke you can't win on customer experience 00:04:35.930 --> 00:04:39.050 or luxury during the depression you win on price 00:04:39.050 --> 00:04:41.850 period so after the five and dime they eventually 00:04:41.850 --> 00:04:44.389 move into the wholesale business and i feel like 00:04:44.389 --> 00:04:46.870 wholesale is a term we all know but what did 00:04:46.870 --> 00:04:49.959 that actually mean for them back in say The 40s 00:04:49.959 --> 00:04:52.459 and 50s. So wholesale is that layer between the 00:04:52.459 --> 00:04:54.300 manufacturer and the actual retailer. You're 00:04:54.300 --> 00:04:56.860 the middleman. You buy, say, 10 ,000 toasters 00:04:56.860 --> 00:04:59.480 from the factory in one giant lot. And then you 00:04:59.480 --> 00:05:02.000 sell 10 toasters at a time to a thousand different 00:05:02.000 --> 00:05:04.540 small shops. OK, so it's a volume game. Totally 00:05:04.540 --> 00:05:07.000 a volume game. The margins are paper thin, but 00:05:07.000 --> 00:05:09.439 the volume is enormous. The Zimmermans basically 00:05:09.439 --> 00:05:12.480 became experts in logistics in just moving massive 00:05:12.480 --> 00:05:15.850 quantities of goods efficiently. But then. Then 00:05:15.850 --> 00:05:17.509 we get to the pivot. The moment the timeline 00:05:17.509 --> 00:05:22.089 splits and the company we remember is born. 1960. 00:05:22.569 --> 00:05:25.790 1960. The year everything changes for them. They 00:05:25.790 --> 00:05:28.149 decide to leave the pure wholesale business behind 00:05:28.149 --> 00:05:31.189 and try this new hybrid experiment. They open 00:05:31.189 --> 00:05:34.310 a store and they call it Service Merchandise, 00:05:34.310 --> 00:05:37.269 Inc. And the location here is important, too. 00:05:37.329 --> 00:05:40.069 Very important. 309 Broadway, right in downtown 00:05:40.069 --> 00:05:42.470 Nashville, Tennessee. This wasn't some new suburban 00:05:42.470 --> 00:05:45.370 strip mall. This was a downtown storefront. Correct. 00:05:45.430 --> 00:05:47.889 And this is the birth of the catalog showroom. 00:05:48.970 --> 00:05:51.149 We really need to pause here and deconstruct 00:05:51.149 --> 00:05:52.949 this business model because it is the engine 00:05:52.949 --> 00:05:55.649 of their incredible success. But it's also weirdly 00:05:55.649 --> 00:05:58.990 the seed of their eventual destruction. It is 00:05:58.990 --> 00:06:01.129 such a weird model. I mean, in a normal store, 00:06:01.250 --> 00:06:03.230 you walk in, you see the thing you want, you 00:06:03.230 --> 00:06:05.149 grab it, you go to the register and you buy it. 00:06:05.250 --> 00:06:07.410 Simple. In a catalog showroom, you walk in, you 00:06:07.410 --> 00:06:09.069 see a sample of the thing and then you have to 00:06:09.069 --> 00:06:11.680 like. fill out a form to ask for the real thing. 00:06:11.740 --> 00:06:13.980 Why? Why would you add all that friction to the 00:06:13.980 --> 00:06:16.139 shopping process? Well, there are two big reasons. 00:06:16.319 --> 00:06:19.000 One is about marketing psychology, and the other 00:06:19.000 --> 00:06:23.199 one is about cold, hard economics. And the economic 00:06:23.199 --> 00:06:25.360 reason is the most important one, shrinkage. 00:06:25.939 --> 00:06:29.680 Shrinkage. The polite retail euphemism for theft. 00:06:29.819 --> 00:06:33.060 For theft, absolutely. But also damage, lost 00:06:33.060 --> 00:06:36.079 items, administrative errors. But yeah, mostly 00:06:36.079 --> 00:06:38.759 theft. In a standard retail environment, think 00:06:38.759 --> 00:06:41.160 of a modern department store or even a Best Buy 00:06:41.160 --> 00:06:43.740 today. All your inventory is just sitting out 00:06:43.740 --> 00:06:45.920 in the open. It's vulnerable. It's incredibly 00:06:45.920 --> 00:06:48.759 vulnerable. Anyone with a big coat and, you know, 00:06:48.759 --> 00:06:51.300 bad intentions can just walk out with your profit 00:06:51.300 --> 00:06:53.240 margins stuffed in their pocket. And service 00:06:53.240 --> 00:06:54.860 merchandise is bread and butter. Things like 00:06:54.860 --> 00:06:57.220 electronics and jewelry. Those are high value, 00:06:57.300 --> 00:06:59.639 small size items. They are perfect for shoplifting. 00:06:59.980 --> 00:07:03.420 Exactly. You can fit a lot of diamond rings or 00:07:03.420 --> 00:07:06.480 a Walkman in a pocket. By keeping almost all 00:07:06.480 --> 00:07:09.100 of your actual inventory in a secure stockroom 00:07:09.100 --> 00:07:12.100 behind a big wall, you effectively reduce customer 00:07:12.100 --> 00:07:14.839 theft to zero. The only people who can really 00:07:14.839 --> 00:07:16.939 steal from you at that point are your own employees. 00:07:17.180 --> 00:07:19.300 So the showroom model is basically a fortress 00:07:19.300 --> 00:07:22.660 disguised as a store. It's a bank fault for blenders 00:07:22.660 --> 00:07:25.740 and VCRs. And that simple fact lets you lower 00:07:25.740 --> 00:07:28.420 your insurance costs. It lowers your shrink allowance 00:07:28.420 --> 00:07:31.040 in your budget. And you can pass all of those 00:07:31.040 --> 00:07:33.759 savings on to the customer in the form of lower 00:07:33.759 --> 00:07:35.860 prices. That was the core value proposition. 00:07:35.879 --> 00:07:37.759 Okay, that makes total sense. But what about 00:07:37.759 --> 00:07:39.399 the marketing psychology part you mentioned? 00:07:39.660 --> 00:07:42.139 Right. Because all the inventory was in the back, 00:07:42.339 --> 00:07:44.800 it created this feeling that you were buying 00:07:44.800 --> 00:07:47.160 wholesale. It felt like you were getting a special 00:07:47.160 --> 00:07:50.100 deal that normal retail shoppers couldn't get. 00:07:50.000 --> 00:07:52.939 gift like you were in on a secret exactly you 00:07:52.939 --> 00:07:56.000 weren't paying for a fancy display or a big beautiful 00:07:56.000 --> 00:07:58.339 sales floor you were buying direct from the warehouse 00:07:58.339 --> 00:08:01.879 it felt smarter it felt more efficient even the 00:08:01.879 --> 00:08:05.139 name service merchandise sounds so utilitarian 00:08:05.139 --> 00:08:07.220 it doesn't sound like a fun place to shop it 00:08:07.220 --> 00:08:09.269 sounds like a logistics company And that was 00:08:09.269 --> 00:08:11.089 part of the charm. It was a signal. It said, 00:08:11.149 --> 00:08:14.149 we don't waste money on frills, so you save money. 00:08:14.410 --> 00:08:17.189 It was a very powerful message, especially to 00:08:17.189 --> 00:08:19.910 the frugal shoppers of that era. Okay, let's 00:08:19.910 --> 00:08:21.810 walk through the actual ritual of shopping there. 00:08:22.029 --> 00:08:24.170 Because for anyone listening who never experienced 00:08:24.170 --> 00:08:28.629 this, it is genuinely hard to describe just how 00:08:28.629 --> 00:08:32.509 bureaucratic it all felt. It wasn't really shopping 00:08:32.509 --> 00:08:35.309 in the modern sense. It felt more like processing. 00:08:35.549 --> 00:08:37.610 It was an administrative task that you performed. 00:08:38.509 --> 00:08:41.769 Step one, the tools. You walk in the door, you 00:08:41.769 --> 00:08:43.389 don't get a shopping cart, you get a clipboard. 00:08:43.470 --> 00:08:47.250 A heavy wooden clipboard and an order form with 00:08:47.250 --> 00:08:50.610 carbon paper and a tiny little golf pencil with 00:08:50.610 --> 00:08:52.789 no erasure. I want to focus on that clipboard 00:08:52.789 --> 00:08:55.710 for a second. Psychologically, what does giving 00:08:55.710 --> 00:08:58.570 a customer a clipboard instead of a cart do to 00:08:58.570 --> 00:09:00.929 them? It completely changes your mindset. When 00:09:00.929 --> 00:09:02.850 you're pushing a shopping cart, you're in a gatherer 00:09:02.850 --> 00:09:05.230 mode. You just sort of toss things in. It's passive. 00:09:05.289 --> 00:09:07.789 It encourages impulse buys. When you're holding 00:09:07.789 --> 00:09:09.870 a clipboard and a pencil, you're in auditor mode. 00:09:09.990 --> 00:09:11.549 You're making lists. You're checking numbers. 00:09:11.850 --> 00:09:15.350 It makes every single purchase feel more deliberate, 00:09:15.529 --> 00:09:18.950 more serious, more official. It kind of kills 00:09:18.950 --> 00:09:21.559 the impulse buy, doesn't it? To a huge degree, 00:09:21.720 --> 00:09:24.639 yes. You can't just grab a candy bar at the checkout. 00:09:24.960 --> 00:09:27.340 You have to find the candy bar in the catalog 00:09:27.340 --> 00:09:31.879 and write down its specific five -digit SCUDU 00:09:31.879 --> 00:09:35.100 number. That is a lot of friction for a Snickers. 00:09:35.340 --> 00:09:37.500 Okay, so you've got your clipboard. Step two 00:09:37.500 --> 00:09:40.820 is the browsing. The store wasn't, like, totally 00:09:40.820 --> 00:09:43.399 empty. They did have stuff out on display. Right. 00:09:43.460 --> 00:09:45.639 That was the showroom part of the name. They'd 00:09:45.639 --> 00:09:49.500 have one of every major item, one Sony Walkman 00:09:49.500 --> 00:09:53.259 glued to a stand, one toaster chained to a shelf 00:09:53.259 --> 00:09:55.000 so you couldn't walk away with it. And it was 00:09:55.000 --> 00:09:56.759 usually in working order, right? That was the 00:09:56.759 --> 00:09:58.879 claim, yeah. You could press the buttons on the 00:09:58.879 --> 00:10:00.820 stereo. You could open the microwave door and 00:10:00.820 --> 00:10:03.000 see inside. But you could never take that one 00:10:03.000 --> 00:10:04.940 home. That was just the display model. And then 00:10:04.940 --> 00:10:08.070 everywhere there were the catalogs. these giant 00:10:08.070 --> 00:10:11.470 heavy books on podiums all over the store and 00:10:11.470 --> 00:10:13.830 this was a crucial detail because the physical 00:10:13.830 --> 00:10:17.090 store might only have room to display say 2 ,000 00:10:17.090 --> 00:10:19.750 items, but the warehouse in the back might hold 00:10:19.750 --> 00:10:22.190 10 ,000 different products. You could use the 00:10:22.190 --> 00:10:24.009 catalog to order things that weren't even in 00:10:24.009 --> 00:10:25.929 the room with you. This is the part that just 00:10:25.929 --> 00:10:28.110 blows my mind every time I think about it. This 00:10:28.110 --> 00:10:30.409 is literally a website. It's a paper website. 00:10:30.809 --> 00:10:33.169 You're browsing a database of products, you're 00:10:33.169 --> 00:10:35.950 selecting one, and you're initiating a fulfillment 00:10:35.950 --> 00:10:38.769 request. They just use paper and pencil instead 00:10:38.769 --> 00:10:42.230 of HTML and a mouse click. It is manual e -commerce. 00:10:42.710 --> 00:10:45.629 You find the item you want in the book. You find 00:10:45.629 --> 00:10:47.919 the code. And you had to be so accurate with 00:10:47.919 --> 00:10:49.740 that code. If you wrote down a six instead of 00:10:49.740 --> 00:10:51.299 an eight, you were going home with a curling 00:10:51.299 --> 00:10:53.700 iron instead of the power drill you wanted. I'm 00:10:53.700 --> 00:10:55.779 sure that happened all the time. Okay, so step 00:10:55.779 --> 00:10:58.639 three, the order. You filled out your form. You 00:10:58.639 --> 00:11:00.879 take your clipboard up to a clerk. The human 00:11:00.879 --> 00:11:03.929 interface. The clerk takes your sheet. and types 00:11:03.929 --> 00:11:06.629 all those numbers into a computer terminal. And 00:11:06.629 --> 00:11:08.870 this was actually a pretty sophisticated part 00:11:08.870 --> 00:11:11.269 of the operation for the time. That terminal 00:11:11.269 --> 00:11:13.429 was talking to a central server, which was then 00:11:13.429 --> 00:11:15.730 talking to a printer back in the stock room. 00:11:15.889 --> 00:11:18.649 And you pay before you get the item. That is 00:11:18.649 --> 00:11:21.389 such a crucial distinction. In a normal store, 00:11:21.590 --> 00:11:24.370 possession happens before payment. You're holding 00:11:24.370 --> 00:11:26.809 the item in your hand while you're in line. Here, 00:11:26.970 --> 00:11:28.929 you pay your money and all you have is a receipt. 00:11:29.129 --> 00:11:31.629 You are putting your trust in the system to deliver 00:11:31.629 --> 00:11:34.370 the goods. Which leads us to the grand finale. 00:11:34.690 --> 00:11:38.929 Step four, the handover. The conveyor belt. The 00:11:38.929 --> 00:11:41.610 climax of the entire visit. You move from the 00:11:41.610 --> 00:11:44.330 cashier area over to the merchandise pickup area. 00:11:44.570 --> 00:11:47.500 You find your spot along the metal railing. And 00:11:47.500 --> 00:11:49.200 you wait. And you know, it's interesting. In 00:11:49.200 --> 00:11:52.139 modern retail, wait times are seen as a total 00:11:52.139 --> 00:11:55.320 failure of the system. But at Service Merchandise, 00:11:55.480 --> 00:11:57.980 the wait was part of the value proposition. It 00:11:57.980 --> 00:11:59.740 built anticipation. It was part of the show. 00:11:59.960 --> 00:12:02.000 I think you're right. It validated that the item 00:12:02.000 --> 00:12:03.779 was fresh from the warehouse. It was coming right 00:12:03.779 --> 00:12:05.620 from the back. It hadn't been handled by 100 00:12:05.620 --> 00:12:08.860 other customers. It was a pristine box, untouched 00:12:08.860 --> 00:12:11.899 by the masses, just for you. But they didn't 00:12:11.899 --> 00:12:14.639 stick with just pencils and clerks forever. We 00:12:14.639 --> 00:12:17.100 have to talk about silence, Sam. Ah, Silent Sam, 00:12:17.340 --> 00:12:20.620 their big, bold attempt to automate the human 00:12:20.620 --> 00:12:23.159 interface clerk. This was in the late 80s, so 00:12:23.159 --> 00:12:26.399 this is very early tech. Oh, very early. They 00:12:26.399 --> 00:12:28.620 put these computer kiosks out on the sales floor. 00:12:28.879 --> 00:12:31.000 The idea was that customers would just type in 00:12:31.000 --> 00:12:33.330 their own orders. I can only imagine the user 00:12:33.330 --> 00:12:35.370 interface on those things. Probably green text 00:12:35.370 --> 00:12:37.990 on a black screen, right? Almost certainly. And 00:12:37.990 --> 00:12:40.409 think about the demographic at the time. You're 00:12:40.409 --> 00:12:43.090 asking people who, for the most part, did not 00:12:43.090 --> 00:12:45.409 grow up with computers to interact with a retail 00:12:45.409 --> 00:12:49.549 database. It was a bold move. They later rebranded 00:12:49.549 --> 00:12:52.149 it to Service Express, but the core idea was 00:12:52.149 --> 00:12:55.669 the same. Remove the labor cost of the clerk. 00:12:56.139 --> 00:12:58.320 who just types in the data. It is the direct 00:12:58.320 --> 00:13:01.379 ancestor of the self -checkout lane and the McDonald's 00:13:01.379 --> 00:13:03.379 ordering kiosk. Again, they were just decades 00:13:03.379 --> 00:13:05.419 early to the party. They were constantly trying 00:13:05.419 --> 00:13:07.639 to solve the friction problem that their own 00:13:07.639 --> 00:13:10.320 model created. They knew the clipboard and the 00:13:10.320 --> 00:13:13.340 line for the clerk were annoyances. Silent Sam 00:13:13.340 --> 00:13:15.360 was the patch they invented. So the model is 00:13:15.360 --> 00:13:17.460 working. It's working incredibly well, actually. 00:13:17.620 --> 00:13:20.279 Let's get into the golden era. The 1970s and 00:13:20.279 --> 00:13:23.120 80s, service merchandise is just exploding across 00:13:23.120 --> 00:13:26.100 the country. They are riding two massive cultural 00:13:26.100 --> 00:13:29.100 waves at the same time. One is the general suburban 00:13:29.100 --> 00:13:31.799 expansion in America, and the other is the mall 00:13:31.799 --> 00:13:34.610 boom. And their real estate strategy was so smart, 00:13:34.629 --> 00:13:36.610 it wasn't to be in the mall, but to be near the 00:13:36.610 --> 00:13:39.669 mall. Exactly. They were often a pad site or 00:13:39.669 --> 00:13:42.710 a main anchor in an adjacent strip center. They 00:13:42.710 --> 00:13:45.289 let the big, expensive mall generate all the 00:13:45.289 --> 00:13:47.309 traffic, and then they would just siphon it off. 00:13:47.710 --> 00:13:50.429 The strategy was basically, you just bought some 00:13:50.429 --> 00:13:53.100 new clothes at the Gap. Great. Now come across 00:13:53.100 --> 00:13:55.100 the street and buy a television and some new 00:13:55.100 --> 00:13:57.659 silverware. And the numbers just went wild. This 00:13:57.659 --> 00:14:01.240 is where we see that $4 billion a year in sales 00:14:01.240 --> 00:14:03.539 figure. To put that in perspective, in the early 00:14:03.539 --> 00:14:06.639 1980s, that puts them in the absolute upper echelon 00:14:06.639 --> 00:14:09.539 of American retailers. They weren't quite Sears, 00:14:09.539 --> 00:14:11.559 but they were a legitimate heavy hitter. And 00:14:11.559 --> 00:14:13.080 they started acting like a heavy hitter, too. 00:14:13.120 --> 00:14:15.240 They moved their headquarters. Yep. From downtown 00:14:15.240 --> 00:14:18.000 Nashville out to the suburbs to Brentwood, Tennessee. 00:14:19.299 --> 00:14:22.159 Specifically... the Cool Springs area. For people 00:14:22.159 --> 00:14:25.139 who know that area, that's a huge deal. But for 00:14:25.139 --> 00:14:27.600 everyone else, what does a move like that signify? 00:14:27.799 --> 00:14:30.980 It signifies a major shift from being a scrappy 00:14:30.980 --> 00:14:33.860 family business to becoming a corporate empire. 00:14:34.279 --> 00:14:37.279 They built a massive sprawling campus. They were 00:14:37.279 --> 00:14:39.519 one of the very first big businesses to develop 00:14:39.519 --> 00:14:42.279 that area. It showed they had capital to burn 00:14:42.279 --> 00:14:44.840 and that they were planning for seemingly infinite 00:14:44.840 --> 00:14:47.559 growth. And with that growth came a hunger for 00:14:47.559 --> 00:14:49.470 more. they started buying up their competitors. 00:14:49.730 --> 00:14:53.129 The acquisition of H .J. Wilson Co. in May of 00:14:53.129 --> 00:14:56.190 1985 is the really big one. Wilson's. For around 00:14:56.190 --> 00:14:59.330 $200 million. A massive check to write in 1985. 00:15:00.090 --> 00:15:02.340 Wilson's was their key to the Sun Belt. It gave 00:15:02.340 --> 00:15:04.559 them an instant massive footprint in the South 00:15:04.559 --> 00:15:06.919 and the Southwest. And Wilson's was a little 00:15:06.919 --> 00:15:08.600 bit different from service merchandise, right? 00:15:08.679 --> 00:15:11.200 They sold clothes. They did. Some of their locations 00:15:11.200 --> 00:15:14.320 had these huge 15 ,000 square foot off -priced 00:15:14.320 --> 00:15:16.559 apparel departments. And this is where you can 00:15:16.559 --> 00:15:19.460 start to see the first signs of an identity crisis 00:15:19.460 --> 00:15:22.179 creeping in. How so? Well, service merchandise 00:15:22.179 --> 00:15:25.980 was known for hard lines, electronics, jewelry, 00:15:26.360 --> 00:15:29.340 home goods, things that come in a box. Suddenly, 00:15:29.419 --> 00:15:31.970 they're trying to sell sweaters and jeans. Clothes 00:15:31.970 --> 00:15:34.450 are a total nightmare for a catalog showroom 00:15:34.450 --> 00:15:36.370 model. You need to be able to try them on. You 00:15:36.370 --> 00:15:37.809 need all the different sizes. You can't just 00:15:37.809 --> 00:15:41.289 order shirt medium from a warehouse and hope 00:15:41.289 --> 00:15:43.960 it fits. complicates the logistics significantly. 00:15:44.679 --> 00:15:47.580 But they were just so hungry for growth. They 00:15:47.580 --> 00:15:50.159 also bought up jewelry chains like Zim's Jewelers 00:15:50.159 --> 00:15:52.360 and all these little specialty stores like the 00:15:52.360 --> 00:15:54.940 lingerie store and the toy store. And we can't 00:15:54.940 --> 00:15:57.960 forget Mr. Howe Warehouse. Which was their attempt 00:15:57.960 --> 00:16:00.320 at a home improvement concept. They were trying 00:16:00.320 --> 00:16:03.360 to be the Home Depot before the Home Depot completely 00:16:03.360 --> 00:16:07.159 took over that space. They were really just throwing 00:16:07.159 --> 00:16:09.039 spaghetti at the wall to see what would stick. 00:16:09.159 --> 00:16:11.480 But for the general public. The face of the company 00:16:11.480 --> 00:16:14.000 wasn't all these acquisitions. It was the game 00:16:14.000 --> 00:16:16.919 shows. This was their absolute masterstroke of 00:16:16.919 --> 00:16:20.519 marketing in the 80s. Wheel of Fortune. The price 00:16:20.519 --> 00:16:23.000 is right. Oh man, I can still hear the announcer's 00:16:23.000 --> 00:16:25.559 voice in my head. A fabulous diamond necklace 00:16:25.559 --> 00:16:30.200 with a retail value of $3 ,000. Provided by Service 00:16:30.200 --> 00:16:32.639 Merchandise. Think about what that does for your 00:16:32.639 --> 00:16:35.549 brand. These shows were watched by tens of millions 00:16:35.549 --> 00:16:38.429 of people every single day. And they weren't 00:16:38.429 --> 00:16:41.309 just showing a logo. They were associating the 00:16:41.309 --> 00:16:44.889 products and the store with winning, with luxury, 00:16:45.110 --> 00:16:47.629 with the ultimate prize you could take home. 00:16:47.690 --> 00:16:50.320 It totally elevated them. Above a place like 00:16:50.320 --> 00:16:53.019 Walmart. You don't win a Walmart gift card on 00:16:53.019 --> 00:16:55.740 Wheel of Fortune. You win a service merchandise 00:16:55.740 --> 00:16:58.279 prize package. Yeah. It sounded so much more 00:16:58.279 --> 00:17:01.320 glamorous. It created this prestige halo around 00:17:01.320 --> 00:17:03.700 what was, at the end of the day, a discount warehouse 00:17:03.700 --> 00:17:06.279 operation. It was truly brilliant marketing. 00:17:06.559 --> 00:17:08.799 So they're on top of the world. They're rich. 00:17:08.859 --> 00:17:11.740 They're famous. They're everywhere. But, and 00:17:11.740 --> 00:17:14.240 there's always but. They weren't blind. They 00:17:14.240 --> 00:17:16.279 knew the world was changing. And this brings 00:17:16.279 --> 00:17:18.880 us to the whole innovation and experiments part 00:17:18.880 --> 00:17:20.839 of their story. Because I think people assume 00:17:20.839 --> 00:17:22.539 service merchandise died just because they were 00:17:22.539 --> 00:17:24.220 old -fashioned. But they were actually doing 00:17:24.220 --> 00:17:26.599 some really wild, forward -thinking stuff. They 00:17:26.599 --> 00:17:28.720 were. They were almost desperate to modernize 00:17:28.720 --> 00:17:31.339 their own model. And the most fascinating experiment 00:17:31.339 --> 00:17:34.259 to me has to be the drive -thru. A drive -thru 00:17:34.259 --> 00:17:37.480 for a department store. In the mid -1980s, they 00:17:37.480 --> 00:17:39.900 tested this concept at locations near Chicago 00:17:39.900 --> 00:17:43.119 and Nashville. How did that even work? You'd 00:17:43.119 --> 00:17:45.799 pull up to a window and order a television? Essentially, 00:17:45.920 --> 00:17:48.720 yes. You would phone in your order ahead of time 00:17:48.720 --> 00:17:51.359 using the catalog numbers, of course. Then you'd 00:17:51.359 --> 00:17:53.700 drive to the store, pull into a dedicated lane, 00:17:53.880 --> 00:17:56.519 and an employee would bring the box out and load 00:17:56.519 --> 00:17:58.599 it into your trunk. Stop me if I'm crazy, but 00:17:58.599 --> 00:18:01.779 that is curbside pickup. That is literally the 00:18:01.779 --> 00:18:04.200 thing that saved Target and Best Buy during the 00:18:04.200 --> 00:18:06.720 pandemic. It is exactly that. They invented it 00:18:06.720 --> 00:18:09.559 35 years too early. So why didn't it work? If 00:18:09.559 --> 00:18:12.690 it's such a genius idea now... Why was it a flop 00:18:12.690 --> 00:18:15.549 back then? A combination of technology and culture, 00:18:15.650 --> 00:18:18.589 I think. First, phoning in an order is high friction. 00:18:18.809 --> 00:18:21.250 You have to find the number, talk to a human, 00:18:21.450 --> 00:18:23.589 read a bunch of long codes, and hope they get 00:18:23.589 --> 00:18:25.349 it right. There's no app where you can just tap, 00:18:25.430 --> 00:18:28.849 I'm here. Second, the consumer just wasn't trained 00:18:28.849 --> 00:18:31.710 for it yet. In the 80s, going shopping was leisure 00:18:31.710 --> 00:18:34.009 activity. You wanted to go into the store and 00:18:34.009 --> 00:18:37.269 browse. The idea of contactless pickup wasn't 00:18:37.269 --> 00:18:39.859 a selling point. It was just plain weird. So 00:18:39.859 --> 00:18:41.579 they were solving a problem that people didn't 00:18:41.579 --> 00:18:44.380 know they had yet. Precisely. And then, of course, 00:18:44.500 --> 00:18:48.660 there's the big one. The Internet. The 90s. The 00:18:48.660 --> 00:18:50.519 dot -com boom. And here's the thing a lot of 00:18:50.519 --> 00:18:52.920 people forget. Service Merchandise was actually 00:18:52.920 --> 00:18:56.279 one of the first major retailers to launch a 00:18:56.279 --> 00:18:58.720 functional e -commerce website. Yeah, the source 00:18:58.720 --> 00:19:01.680 material says they were generating tens of millions 00:19:01.680 --> 00:19:05.000 in sales online pretty early on. In the mid to 00:19:05.000 --> 00:19:08.099 late 90s, that is a legitimate, significant revenue 00:19:08.099 --> 00:19:10.500 stream. They weren't ignoring the web at all. 00:19:10.519 --> 00:19:12.819 They embraced it. And this makes so much sense. 00:19:13.039 --> 00:19:15.339 Their entire back end was already set up for 00:19:15.339 --> 00:19:17.339 this kind of thing. They had the item codes, 00:19:17.519 --> 00:19:19.859 the central warehouses, the shipping logistics. 00:19:20.119 --> 00:19:22.720 They were uniquely positioned to be the Amazon 00:19:22.720 --> 00:19:26.000 of the 1990s. On paper, they should have won 00:19:26.000 --> 00:19:28.279 the whole game. They already had the physical 00:19:28.279 --> 00:19:30.599 distribution network that a company like Amazon 00:19:30.599 --> 00:19:32.740 had to spend billions to build from scratch. 00:19:32.960 --> 00:19:35.799 They had the vendor relationships. They had decades 00:19:35.799 --> 00:19:38.710 of brand trust. So why aren't we all ordering 00:19:38.710 --> 00:19:40.970 our toilet paper from ServiceMerchandise .com 00:19:40.970 --> 00:19:43.710 today? What went wrong? It's a classic case of 00:19:43.710 --> 00:19:47.180 the innovator's dilemma. They had a massive legacy 00:19:47.180 --> 00:19:49.539 business to protect. They couldn't just pivot 00:19:49.539 --> 00:19:53.160 100 % to online because they had hundreds of 00:19:53.160 --> 00:19:55.500 these massive, expensive physical stores that 00:19:55.500 --> 00:19:58.440 needed to pay rent and salaries. Amazon had no 00:19:58.440 --> 00:20:01.200 stores. Amazon could run lean and mean. Service 00:20:01.200 --> 00:20:03.259 merchandise was trying to fly a rocket ship while 00:20:03.259 --> 00:20:05.940 dragging a 10 -ton anchor behind it. And while 00:20:05.940 --> 00:20:07.519 they were busy trying to figure out the internet, 00:20:07.819 --> 00:20:10.990 the real sharks were circling in the water. the 00:20:10.990 --> 00:20:14.130 category killers the 1990s was just a bloodbath 00:20:14.130 --> 00:20:16.289 for general retailers this is the era where the 00:20:16.289 --> 00:20:18.630 whole general store concept the idea of selling 00:20:18.630 --> 00:20:21.470 a little bit of everything finally died for good 00:20:21.470 --> 00:20:23.730 we need to name names here who actually killed 00:20:24.109 --> 00:20:26.430 Service merchandise. It wasn't one killer. It 00:20:26.430 --> 00:20:28.589 was a gang. In the electronics department, it 00:20:28.589 --> 00:20:31.430 was Best Buy and Circuit City. In home goods, 00:20:31.670 --> 00:20:34.210 it was Bed Bath and Beyond. In the toy aisle, 00:20:34.369 --> 00:20:37.569 it was Toys R Us. And looming over all of it 00:20:37.569 --> 00:20:40.329 like a giant shadow was Walmart. Let's take Best 00:20:40.329 --> 00:20:42.509 Buy as the prime example. What did Best Buy do 00:20:42.509 --> 00:20:44.930 that service merchandise couldn't or wouldn't? 00:20:45.089 --> 00:20:47.190 Best Buy introduced what they called the concept 00:20:47.190 --> 00:20:49.710 to store format. It was revolutionary at the 00:20:49.710 --> 00:20:53.009 time. Big open shelves, no sales clerks hounding 00:20:53.009 --> 00:20:56.140 you. No clipboards. You walk in, you see the 00:20:56.140 --> 00:20:58.400 VCR you want, you grab the sealed box right off 00:20:58.400 --> 00:21:01.279 the shelf and you walk out. It was instant gratification. 00:21:01.480 --> 00:21:04.400 Total instant gratification. And from a business 00:21:04.400 --> 00:21:07.220 perspective, significantly lower later costs. 00:21:07.480 --> 00:21:09.720 They didn't need the guy in the stockroom finding 00:21:09.720 --> 00:21:12.039 the box and loading the belt. They didn't need 00:21:12.039 --> 00:21:13.880 the clerk at the counter typing in the order. 00:21:14.000 --> 00:21:16.619 The customer did all that work for free. So all 00:21:16.619 --> 00:21:19.490 that friction. That service merchandise had introduced 00:21:19.490 --> 00:21:22.430 the clipboard, the form, the weight. It suddenly 00:21:22.430 --> 00:21:24.470 looked incredibly archaic. It wasn't sophisticated 00:21:24.470 --> 00:21:27.730 anymore. It was just annoying. Speed became the 00:21:27.730 --> 00:21:30.390 new currency in retail. In the 70s, people had 00:21:30.390 --> 00:21:33.029 time. In the 90s, with two income households 00:21:33.029 --> 00:21:35.750 becoming the norm, everyone was busy. Waiting 00:21:35.750 --> 00:21:38.210 15 minutes for a toaster to come down a conveyor 00:21:38.210 --> 00:21:40.450 belt suddenly felt like an eternity. And then 00:21:40.450 --> 00:21:43.190 there's Walmart. Did Walmart just beat them on 00:21:43.190 --> 00:21:45.730 price, plain and simple? Walmart beat them and 00:21:45.730 --> 00:21:49.339 everyone else. On supply chain. Walmart's logistics 00:21:49.339 --> 00:21:53.119 were so incredibly efficient, their buying power 00:21:53.119 --> 00:21:56.380 was so massive that they could often sell a toaster 00:21:56.380 --> 00:21:59.259 for less than natural. Service merchandise paid 00:21:59.259 --> 00:22:02.359 the manufacturer to buy it. You just can't compete 00:22:02.359 --> 00:22:04.980 with that math. So service merchandise is bleeding 00:22:04.980 --> 00:22:07.700 market share from all sides. They're losing the 00:22:07.700 --> 00:22:10.240 electronics war to Best Buy. They're losing the 00:22:10.240 --> 00:22:13.220 price war to Walmart. What do they do? They panic. 00:22:13.720 --> 00:22:16.460 Or, in corporate speak, they restructure. 1994. 00:22:16.859 --> 00:22:19.519 They bring in a new guy, Gary M. Whitkin, as 00:22:19.519 --> 00:22:22.339 president and COO. Right. New blood. He comes 00:22:22.339 --> 00:22:23.980 in, looks at the books, and realizes they cannot 00:22:23.980 --> 00:22:26.099 win the electronics game anymore. The margins 00:22:26.099 --> 00:22:28.480 are just gone. So they make a fateful decision. 00:22:28.920 --> 00:22:31.440 They decide to cut off the limb to save the body. 00:22:31.640 --> 00:22:33.779 They stopped selling electronics. They drastically 00:22:33.779 --> 00:22:36.019 reduced them. They cut out toys almost entirely. 00:22:36.279 --> 00:22:38.720 They got rid of sporting goods. But these were 00:22:38.720 --> 00:22:40.700 the things that brought people into the store 00:22:40.700 --> 00:22:42.380 in the first place. That sounds like corporate 00:22:42.380 --> 00:22:45.059 suicide. If you stop selling all the cool stuff, 00:22:45.259 --> 00:22:47.400 why would anyone bother to come in? Their logic 00:22:47.400 --> 00:22:50.240 was, we can't make any money on TVs anymore because 00:22:50.240 --> 00:22:52.299 the margins are too thin, so let's double down 00:22:52.299 --> 00:22:55.079 and focus on our high -margin items. Jewelry. 00:22:55.859 --> 00:22:59.359 Gifts. Home decor. They tried to turn a utilitarian 00:22:59.359 --> 00:23:02.000 warehouse into a fancy jewelry box. Exactly. 00:23:02.000 --> 00:23:04.180 But you don't go to a store with a conveyor belt 00:23:04.180 --> 00:23:06.400 and a clipboard to buy a high -end engagement 00:23:06.400 --> 00:23:10.220 ring. The brand identity was completely at odds 00:23:10.220 --> 00:23:12.579 with the new product focus. The vibe was all 00:23:12.579 --> 00:23:15.130 wrong. And the stores started to close. They 00:23:15.130 --> 00:23:17.829 shed locations left and right. They downsized 00:23:17.829 --> 00:23:20.069 the stores that remained open. They were desperately 00:23:20.069 --> 00:23:21.930 trying to shrink their way back to profitability. 00:23:22.289 --> 00:23:24.589 But in retail, once you start shrinking, it's 00:23:24.589 --> 00:23:27.049 almost always a death spiral. Which leads us 00:23:27.049 --> 00:23:30.390 to the grim reality of the endgame. 1999. March 00:23:30.390 --> 00:23:33.690 15th, 1999. A date that lives in infamy for the 00:23:33.690 --> 00:23:36.309 company. They are hit with an involuntary Chapter 00:23:36.309 --> 00:23:39.490 11 bankruptcy petition. I want to pause on that 00:23:39.490 --> 00:23:42.539 word, involuntary. Because usually a company 00:23:42.539 --> 00:23:44.539 files for bankruptcy to protect itself from its 00:23:44.539 --> 00:23:46.720 creditors. This was the other way around. This 00:23:46.720 --> 00:23:50.059 is a rare and incredibly aggressive move. It 00:23:50.059 --> 00:23:52.799 means that the people service merchandise owed 00:23:52.799 --> 00:23:56.599 money to the creditors, the vendors, the suppliers. 00:23:56.779 --> 00:23:59.799 They all got together and said, we don't trust 00:23:59.799 --> 00:24:02.200 you to run this company anymore. We are forcing 00:24:02.200 --> 00:24:04.259 you into court to make sure we get what little 00:24:04.259 --> 00:24:07.799 is left. Wow. That is the ultimate vote of no 00:24:07.799 --> 00:24:10.859 confidence. It's a hostile takeover of the company's 00:24:10.859 --> 00:24:13.759 finances. Service Merchandise quickly filed its 00:24:13.759 --> 00:24:16.299 own voluntary petition to try and regain some 00:24:16.299 --> 00:24:18.640 control of the process. But the writing was on 00:24:18.640 --> 00:24:20.900 the wall. The trust between the company and its 00:24:20.900 --> 00:24:23.000 suppliers was completely broken. And this was 00:24:23.000 --> 00:24:25.240 a massive bankruptcy. It was one of the top 10 00:24:25.240 --> 00:24:27.619 largest in the nation at the time. We are talking 00:24:27.619 --> 00:24:29.839 about billions and billions of dollars in debt. 00:24:29.940 --> 00:24:32.849 And the Zimmerman family. Raymond, the son of 00:24:32.849 --> 00:24:34.769 the founders. He finally resigned as chairman 00:24:34.769 --> 00:24:37.630 in November of 2000. The family that had built 00:24:37.630 --> 00:24:39.809 this retail empire from a single five and dime 00:24:39.809 --> 00:24:42.609 in Pulaski, Tennessee, was officially out. So 00:24:42.609 --> 00:24:44.430 now it's just lawyers and accountants trying 00:24:44.430 --> 00:24:46.450 to salvage the wreckage. They actually make an 00:24:46.450 --> 00:24:49.109 attempt to emerge from bankruptcy in 2001. They 00:24:49.109 --> 00:24:51.210 did. They had a plan. They were going to be a 00:24:51.210 --> 00:24:54.170 much smaller, leaner, jewelry -focused chain. 00:24:54.809 --> 00:24:56.569 And, you know, they just might have made it. 00:24:56.880 --> 00:24:58.880 But history had other plans. In the summer of 00:24:58.880 --> 00:25:00.839 2001, they're getting all their ducks in a row. 00:25:00.900 --> 00:25:03.059 They're getting the financing lined up. And then 00:25:03.059 --> 00:25:05.799 September 11th happens. And the world just stops. 00:25:06.059 --> 00:25:09.059 The economy completely freezes. Consumer confidence 00:25:09.059 --> 00:25:12.940 hits rock bottom. For a retailer that was already 00:25:12.940 --> 00:25:16.380 in the ICU on life support, this was the equivalent 00:25:16.380 --> 00:25:18.519 of the plug being pulled. There was absolutely 00:25:18.519 --> 00:25:21.720 no way to raise the capital they needed in that 00:25:21.720 --> 00:25:26.079 economic environment. So January 2002? It's officially 00:25:26.079 --> 00:25:28.599 over. Liquidation. The end of the line. And the 00:25:28.599 --> 00:25:30.599 stock price. Worth less than one cent per share. 00:25:30.880 --> 00:25:33.240 It's just staggering to think about. Billions 00:25:33.240 --> 00:25:36.779 in value. Decades of history just erased. And 00:25:36.779 --> 00:25:39.019 it wasn't just them. This is the key context 00:25:39.019 --> 00:25:42.039 that I think people miss. Rendles. Best products? 00:25:42.220 --> 00:25:45.099 Sterling Jewelry, McDade's, all of the other 00:25:45.099 --> 00:25:47.440 major catalog showrooms died around the exact 00:25:47.440 --> 00:25:49.740 same time. So it wasn't just that service merchandise 00:25:49.740 --> 00:25:52.339 was badly run in the end. It was an extinction 00:25:52.339 --> 00:25:55.200 -level event for the entire species. The retail 00:25:55.200 --> 00:25:57.779 environment changed, and that specific organism 00:25:57.779 --> 00:26:01.240 couldn't adapt. The catalog showroom model was 00:26:01.240 --> 00:26:03.779 an evolutionary dead end. Before we wrap this 00:26:03.779 --> 00:26:06.000 all up... I do want to touch on the human side 00:26:06.000 --> 00:26:08.119 of this for a moment. Because for all the talk 00:26:08.119 --> 00:26:10.619 of stock prices and conveyor belts, this was 00:26:10.619 --> 00:26:12.640 a company that actually meant a lot to its community. 00:26:12.839 --> 00:26:14.519 Absolutely. And you have to talk about their 00:26:14.519 --> 00:26:16.599 work with the Muscular Dystrophy Association. 00:26:17.140 --> 00:26:19.759 If you grew up watching the Jerry Lewis telethon 00:26:19.759 --> 00:26:22.539 on Labor Day weekend, you saw Raymond Zimmerman. 00:26:22.839 --> 00:26:25.859 Every single year, he would come out on stage 00:26:25.859 --> 00:26:28.740 with one of those giant checks. Service Merchandise 00:26:28.740 --> 00:26:31.099 was one of the MDA's biggest corporate sponsors. 00:26:31.420 --> 00:26:34.380 They raised millions upon millions of dollars 00:26:34.380 --> 00:26:36.539 through their stores and their customers. It's 00:26:36.539 --> 00:26:38.720 just a good reminder that these giant corporations, 00:26:39.099 --> 00:26:41.059 they're made of people. And when they collapse, 00:26:41.259 --> 00:26:43.859 it's not just a logo that disappears from a building. 00:26:44.000 --> 00:26:48.119 It's thousands of jobs. It's millions in charitable 00:26:48.119 --> 00:26:51.049 giving. It's a real hole in the community. It 00:26:51.049 --> 00:26:53.630 is. Nashville lost a major corporate pillar when 00:26:53.630 --> 00:26:56.430 they went under. So here we are. 2002 is long 00:26:56.430 --> 00:26:58.769 gone. The old stores have all been turned into 00:26:58.769 --> 00:27:02.130 Best Buys or gyms or seasonal Halloween pop -up 00:27:02.130 --> 00:27:07.150 shops. But the legacy is... Well, it's complicated. 00:27:07.430 --> 00:27:09.069 It really is. I want to go back to that central 00:27:09.069 --> 00:27:10.990 irony we touched on at the very beginning. The 00:27:10.990 --> 00:27:13.930 big what if. The Amazon tear low. We established 00:27:13.930 --> 00:27:15.849 that service merchandise had the warehouses. 00:27:16.240 --> 00:27:18.740 They had the catalog system. They had a customer 00:27:18.740 --> 00:27:20.940 base that was already trained in the order and 00:27:20.940 --> 00:27:24.900 wait mentality. They even had an early functioning 00:27:24.900 --> 00:27:27.700 website generating real sales. They had all the 00:27:27.700 --> 00:27:29.839 ingredients in the kitchen. So why couldn't they 00:27:29.839 --> 00:27:32.289 have just... I don't know, closed the stores 00:27:32.289 --> 00:27:34.990 and gone all in on the website. That is the multi 00:27:34.990 --> 00:27:37.490 -billion dollar question, isn't it? If they had 00:27:37.490 --> 00:27:39.910 been brave enough or maybe just desperate enough 00:27:39.910 --> 00:27:43.549 in, say, 1998 to stand up and say, we are closing 00:27:43.549 --> 00:27:45.630 every single showroom, we're firing the clerks, 00:27:45.650 --> 00:27:47.609 we are keeping the warehouses in the name, we 00:27:47.609 --> 00:27:50.990 are now servicemerchandise .com, an online -only 00:27:50.990 --> 00:27:53.130 retailer. Could they have actually become Amazon? 00:27:53.390 --> 00:27:56.579 They had a huge head start. Amazon was famously 00:27:56.579 --> 00:27:58.779 struggling with logistics and profitability in 00:27:58.779 --> 00:28:01.640 the late 90s. Service merchandise had mastered 00:28:01.640 --> 00:28:05.440 logistics back in the 70s. If they had pivoted 00:28:05.440 --> 00:28:09.160 to a pure play e -commerce model using their 00:28:09.160 --> 00:28:13.480 existing nationwide supply chain, it's not impossible 00:28:13.480 --> 00:28:15.799 to imagine a world where they succeeded. But 00:28:15.799 --> 00:28:18.420 they were tied to the real estate, tied to the 00:28:18.420 --> 00:28:20.700 old way of doing things. They were in love with 00:28:20.700 --> 00:28:22.759 the building. They were in love with the conveyor 00:28:22.759 --> 00:28:25.730 belt. And that's the trap so many old companies 00:28:25.730 --> 00:28:28.630 fall into. They thought they were in the showroom 00:28:28.630 --> 00:28:31.410 business, but they should have realized much 00:28:31.410 --> 00:28:33.509 sooner that they were actually in the fulfillment 00:28:33.509 --> 00:28:36.230 business. That is a really profound distinction. 00:28:36.849 --> 00:28:39.630 Knowing what business you are actually in. It's 00:28:39.630 --> 00:28:42.490 the lesson for every legacy company. Kodak thought 00:28:42.490 --> 00:28:43.890 they were in the film business, but they were 00:28:43.890 --> 00:28:46.230 actually in the memory business. Service merchandise 00:28:46.230 --> 00:28:47.970 thought they were in the store business, but 00:28:47.970 --> 00:28:49.869 they were really in the logistics business. And 00:28:49.869 --> 00:28:52.519 because they clung so tightly to the store. They 00:28:52.519 --> 00:28:54.680 ended up losing everything. They protected the 00:28:54.680 --> 00:28:57.619 past at the direct expense of the future. That 00:28:57.619 --> 00:28:59.960 is a heavy thought to leave this on. The next 00:28:59.960 --> 00:29:02.480 time you click buy now on Amazon and you see 00:29:02.480 --> 00:29:04.839 that little progress bar on your order moving 00:29:04.839 --> 00:29:07.859 from processing to shipping, just take a second 00:29:07.859 --> 00:29:10.700 and remember, you are looking at the ghost of 00:29:10.700 --> 00:29:13.519 the service merchandise conveyor belt, digitized 00:29:13.519 --> 00:29:15.799 and perfected for the 21st century. The belt 00:29:15.799 --> 00:29:18.140 never stopped rolling. It just moved to the cloud.